Accrual accounting in small public sector entities, for better or for worse? Insights from Portugal and Italy

Purpose This study aims to understand the challenges and benefits realised by small public sector entities (SPSEs) in the transition from cash-to IPSAS-based accrual accounting, focusing on implications for internal management, financial reporting, and accountability. Design/methodology/approach Using a comparative-international approach, a questionnaire was distributed to Italian small municipalities and to Portuguese civil parishes. Data were analysed using descriptive and non-parametric statistics. Findings In SPSEs without prior accrual experience, targeted staff training emerges as crucial for implementing IPSAS-based reforms. For those with experience, benefits for management, financial reporting and accountability are better realised, although guidance from standard-setters, and IT and financial support remain necessary to take the reform process further. Overall, the findings highlight the need to balance the complexity of accounting standards with entities' operational capacity and scope, so international harmonisation comes aligned with local specificities. Practical implications This research questions the “one size fits all” model in public sector accounting (PSA) international harmonisation process, evidencing differential accrual-based accounting and reporting as critical for the successful implementation of IPSAS in SPSEs. These implications should be considered by standard-setters in contexts where SPSEs prevail and accrual accounting is acknowledged to support asset and liability management. Originality/value SPSEs have been under-researched in the PSA international harmonisation process. This study provides valuable insights into the challenges and benefits perceived by SPSEs when implementing IPSAS-based accounting systems, contributing to ongoing debates in the field of PSA reforms, and highlighting the importance of accounting systems tailored to organisational capacity, to support effective public financial management.